New form of project insurance aims to minimise contract disputes

A senior industry figure has appealed to QSs to adopt a new form of insurance aimed at avoiding disputes. Martin Davis, chairman of the Strategic Forum for Construction's integration steering group, is advocating a type of single project insurance. He has the backing of Davis Langdon.

Under the arrangement, each party - client, contractor, subcontractors designers and consultants - shares in the project's profit. If problems crop up on the project, they are paid for out of the collective pool. Beyond this, the insurer carries the risk of financial loss, subject to limited exceptions, such as a change in the project brief.

The set-up aligns the financial objectives of all the parties on the project with those of the client's, "rather than leaving people to make money by suing people".

The approach puts all parties on a single insurance policy that includes the three main types of cover: project all risks, project professional indemnity and third party liability.

The new policy differs from the existing form of single project insurance, which includes only two forms: project all risks and project professional indemnity. The existing form is being used on schemes including Heathrow's T5.

Davis, who is the former vice chairman of M&E and FM contractor Emcor Group UK, argued the approach would encourage the project team to work together to avoid problems before they began to jeopardise profit and therefore lead to disputes. The structure would counter the "blame culture", he said.

QSs would play a key role in the system by ensuring sufficient funds were in the cost plan at the start of the project. This task would be vital to getting the insurer to support the project.

Under Davis' approach, the insurer would be given further peace of mind by the involvement of an independent technical assurance company charged with monitoring the project and spotting potential problems.

Davis says this model is the norm in Belgium, where he believes it plays a major part in making construction efficient.

Davis developed the policy in conjunction with broker Griffiths & Armour and insurer Tysers & Co. They have drafted in Belgian technical assurer Seco for the project monitoring role.

The group hopes to pilot the product in the public sector. NHS Estates, Defence Estates and the Highways Agency have agreed in principle to trial the product on a number of projects worth £15-20m each.

Davis Langdon would provide cost due diligence on the schemes.

Graham De Roy, director of Tysers UK, said: "We can't take this forward without the QSing profession. We need them to provide a valuable cost assurance role."

Davis added that the most common insurance structures used in the building industry, where each party involved with a project has a separate policy, encouraged disputes. The UK construction industry suffered from "the idea of the honest professionals and the contractors who cannot be trusted". As long as this was in place, "of course contractors are going to find a way around this", he said.